How should one calculate the ROI of social media campaigns?

So, Social media is about Customer Engagement and not about the company’s performance goals such as ROI, Market share, Revenues – correct? Well, Yes and No. Although, it has been proven that Social media is most effective as a medium of customer engagement than as a medium of generating sales for the company, ROI is something that marketers cannot wish away. Even if they do, the CFOs will not let them. So is it really important to calculate the ROI of Social media campaigns and if yes, how do you calculate the ROI?

From a marketer’s point of view, the answer to the first part is analogous to answering whether it is important to calculate the ROI of keeping a restroom functional in the company!!! We know that it is useful and necessary and don’t need to or cannot be quantified absolutely accurately. Despite that, the marketers have to provide some quantified estimate of what return the social media campaign will bring to the company. ROI for Social media campaign is calculated is absolutely the same way it is calculated for any other project or investment. The difference though is that every social media campaign would have its own set of cost and value parameters. The question to answer then would be how to measure each of these parameters accurately and ascertain that our assumptions about quantifying them are correct. You need to calculate the overall costs including aspects such as salary of social media team, cost of shipping a product for customer trials as part of social media channel, depreciation costs if any in the overall process, cost incurred by any other department in facilitating the social media campaigns etc. Similarly, on the revenue front, you need to be able to prove that a particular sale is the result of the social media campaign. For example, a customer’s choice of buying your product may not be the result of the very first interaction he has with you on a social media platform. At the same time it could be heavily influenced by his circle of friends interacting with you on social media platforms. Another example could be about measuring repeat customers who first purchased your product due to your social media campaign. Such customers should still be part of your ROI calculations when they make subsequent purchases. So, the challenge is about tracking and measuring the sales that are resulting from your social media campaigns.

The ROI calculations for Social media campaigns are still grounded in concepts of finance and economics and therefore there is no special way to calculate the ROI in social media any differently from that of conventional investments. The increased revenues from Social media campaigns are a result of customer engagements. Firms must understand that Social media campaigns release the bottlenecks in the sales funnel leading to more revenues. The concept of “Source credibility” plays a big part in it where the customer is more likely to buy your products if they hear good things about it on social media platforms from their own friends, rather than hearing it from your salesperson’s or marketer’s mouth. They are less skeptical about your product when they are recommended by their own friends. Another point to understand is that to have a better ROI on social media, you need to focus on increasing the Revenue (numerator) than worrying about the investment (denominator). Social media campaigns provide a good ROI because a social media campaign triggers much more customer-interactions than conventional campaigns would do for example a television advertisement. To estimate, if the number of customer interaction for an ad on TV would be 5, it could easily be 50 on a social media platform. The customer-interactions lead to sales and this huge difference between customer interactions on conventional mediums and social media is what brings in a lot of revenues leading to better ROI of a Social media campaign.

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